The repercussions of the sovereign debt crisis that paralyzes the growth of the European economy are also a big threat to U.S. economic recovery. A wide range of American firms, from small businesses to large corporations, are feeling the squeeze of Europe’s economic recession; making it terribly hard for the United States to fully recover from financial uncertainty and restore its economic health.
Declining Corporate Revenues
As Europe plunges into a fierce economic crisis, a number of major US companies are experiencing severe losses and extreme pressures to remain competitive. The string of economic catastrophes that recently hit Europe have caused the revenues of top American brands such as Starbucks, Apple, General Motors, Whirlpool and Ford to decline significantly. This outcome, over the past few weeks, has intensified concerns on Wall Street about the vitality of the American market and economy.
Ford, a leading American auto manufacturer, says that their sales have plummeted as European new car registrations dropped 5 percent in September compared with August last year. With European consumers not only purchasing fewer cars but also replacing fewer parts, the company are stepping up their efforts and employing alternative tactics to prevent mounting losses.
One of the key problems facing Europe is its banking system. Banking institutions in more stable European countries, such as France and Germany, hold a large amount of bonds from troubled European nations, such as Spain, Ireland and Greece. Unfortunately, the problem does not end there. In struggling European countries, particularly in Spain and Ireland, a large number of banks have bad loans on their books as an outcome of their declining real estate markets.
Tracing the underlying causes of the European crisis, especially its origin, is complex but the impact of Europe’s financial mess is hugely visible to both Europeans and Americans. Just recently, Europe’s unemployment rate has hit a record high at 11.2 percent, causing consumer spending to plummet. Under these conditions, it is no wonder that many European citizens have become significantly uncertain about their financial future and more careful with their spending. The current wave of Euro crisis has indeed encouraged a sense of heavy pessimism among consumers. Survey suggests that Europeans are willing to spend less on large ticket items such as cars and appliances as well as on everyday purchases such as lunch and groceries.
These considerable changes in consumer purchasing behavior are already taking a toll on the profitability of some US companies. If Europe’s troubled economy continues to have an adverse impact on US business, the US market may find itself in great trouble.